Retention or retainage is usually a specific percentage, for example 10%, of the total contract that is held back by the project owner in reserve to protect the owners interest. Retention is not held in a lump sum, but rather held at the stated percentage for the amount requested on each application for payment. Your contract should set the terms, including the percentage and when the hold-back will be paid.
Contractors using QuickBooks often run into difficulties when handling retainage/retention; simply because the software doesn’t have a means to automatically deal with it.
Because QuickBooks doesn’t have a built-in retention function, like many of the more expensive construction specific software program, QuickBooks users must initiate work-arounds and make QuickBooks track retainage that is held on each progress invoice.
Over the years, I’ve seen several work arounds that various contractors, their bookkeepers, and even their accountants have implemented, such as:
- Simply leaving the retention amount of each invoice sitting in their open A/R.
- Billing for just the amounts on each line item that they will be paid for.
- Creating a Customer called Retentions Receivable and then making some fancy Journal Entries each billing period to move the retainage from the originating customer to the Retentions Receivable customer.
- Using a QuickBooks Discount Item to deduct retainage on individual invoices and mapping it to the Chart of Accounts as either an Income Account or Expense Account.
- Creating an Other Current Asset Account, called Retainage (Retention) Receivable and through the use of “Items” automatically move the money to this account on each invoice that is generated.
- Creating a Sub-Account of Accounts Receivable called Retainage (Retention) Receivable and then through the use of Items and additional invoices move the retainage amounts into this newly created Accounts Receivable sub-account.
Each of these methods has their own drawbacks, however, the first three (4) methods described cause the most problems with the contractors accounting records and are methods that I highly recommend that you avoid.
The easiest method that I know of, is tracking Retainage as an Other Current Asset Account on your Chart of Accounts – Balance Sheet section; however, MUST get with your accountant and have him teach you to do a journal entry that will remove the amount from Income.
To implement this system:
- Add an Other Current Asset account to your Chart of Accounts called Retainage or Retention Receivable.
- Create an Other Charge OR Service item in your Item List called “Less Retainage”, map this to the account you created in Step 1, and in the Rate box enter -10.0%.
- Create another Other Charge or Service item in your Item List called “Retainage Due”, again mapping it to the account you created in Step 1.
- Make sure that you have a Subtotal item in your Item List.
- Create your Invoice or Progress Invoice billing for the full amount before any retainage is withheld. On the first blank line at the bottom of the Invoice, select your Subtotal item and then your Less Retainage item – the balance on the invoice that goes to A/R is now the amount after retainage, and the retainage dollars are moved to the Other Current Asset Account.
- You can generate Reports on the Retainage Receivable account showing who owes you what by going to your Chart of Accounts, click on the account created in Step 1 to highlight it, click the Report button at the bottom of the window and choosing QuickReport .
- When you are ready to bill for retainage, create a “normal or regular” invoice using the Retainage Due item and entering the appropriate dollar amount from the report.
As I stated earlier in this article, this is the easiest method – because it’s just adding two additional items to the bottom of your invoice and all the math and work is done for you; however, the amount of retainage that you deducted shows up in your Profit & Loss Report in your Income Account (even if you run the reports on a Cash Basis) which does require that a Journal Entry be created to remove this from your Income. You should consult your accountant for the proper entry.
I’m sure you all have been reading snippets of information on the web and quite possibly you’ve been receiving marketing literature from Intuit about the release of QuickBooks 2010.
Well, it’s official. You can order QuickBooks 2010 beginning September 28, 2009 – directly from Intuit or through the Affiliate Page on our website at a discount of 10-20% – visit http://www.sunburstsoftwaresolutions.com/order-quickbooks.htm
Usually, with the official QuickBooks release announcement, we also release our own independent “Annual Review” of the new features (and what we think of them) that are in the new version of QuickBooks.
Our Review of What’s New In QuickBooks 2010 will not be so timely this year, we have had a VERY tight time frame in which to test and work with a Final Release version – just a little over a week; so we felt that it was more important to FIRST ensure that our software would work as “expected” by our customers – before focusing on a comprehensive write-up of new features.
Below is a partial list of the new features & functionality that we’ve found in QuickBooks 2010 and we will be releasing our “What’s New In QuickBooks 2010″ on October 5, 2009; watch for announcements here and on the “Home Page” of our Technical Support Area on our main website:
- Document Management – attach files of any type (pdf’s, Word docs, Excel spreadsheets, scanned items) to QuickBooks Customer records, Job Records, Vendor Records, Item List entries, Chart of Account Entries. These documents will be stored in a web-based software program and linked to your QuickBooks file.
- Rapid List Entry – allows users to enter, edit and save multiple list items (Customers, Jobs, Vendors, etc.) all on one convenient spreadsheet like table.
- Favorites Menu – create your own “Favorites” menu of commonly-used and/or hard to find menu items and tasks.
- Electronic Check Processing – a check scanning service offered through QuickBooks Merchant Service accounts.
- Additional Custom Fields (Enterprise ONLY) – more custom fields for items and names, new data formats and data validation.
- Build Assemblies (Enterprise ONLY) – the “transaction” form is now a template. Line items can be modified on the fly and printed.
The following items have been improved, according to Intuit literature that we have seen:
- Forms Customization – now easier and faster to make QuickBooks forms look more professional.
- Company Snapshot – allows users to customize what “widgets” they want to see and provides additional widgets for greater insight into the business.
- Condense/Archive – improved logic to more reliably reduce the amount of data in the QuickBooks company file.
- Easier Installation – installing QuickBooks is easier than in previous years.
- Improved Product Registration – reduces time to register QuickBooks.
- Expanded Client Data Review – QuickBooks Premier Account & Enterprise Accountant versions.
- Improved Intuit Statement Writer – sold separately.
- Improved Report Center
Payroll Updates/Enhancements
- Check Signing Feature – Scan your signature, save the image, and then use it in QuickBooks when you print checks on your pre-printed check stock.
- Easily Retrieve Your Payroll Service Key – an on-line tool which requires your Federal EIN, order number OR phone number.
- Certified Payroll Report – compliant with the requirements of the Federal WH-347 & WH-348 according to Intuit (not quite in our opinion)
Watch for continued updates here on our blog as well as on the Technical Support Home Page on our website.
